November 22 , 2009 - In a recent article, you mentioned that there are tax breaks regarding the purchase of specialized equipment. Can you expand on that issue?

Those taxpayers engaged in a farming business have the opportunity to depreciate most new farming machinery and equipment over a 5-year recovery period, instead of over the generally applicable 7-year recovery period, but only if they act before year end. The quicker 5-year writeoff applies only to "qualifying farming property," namely property that meets these requirements: (1) its original use begins with the taxpayer after Dec. 31, 2008;(2) it is placed in service before Jan. 1, 2010; and (3) it isn't a grain bin, cotton ginning asset, fence or other land improvement.

A farming business is defined as the trade or business of farming, which is an activity that must involve the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity. Thus, a farming business includes the trades or businesses of (1) operating a nursery or sod farm, (2) raising or harvesting trees bearing fruit, nuts, or other crops, or ornamental trees and (3) raising, shearing, feeding, caring for, training, and managing animals.

Unless Congress extends the 5-year recovery period (it was enacted as a one-year tax break by the Emergency Economic Stabilization Act of 2008), assets falling in the qualifying farming property category and bought and placed in service after 2009 will be depreciable over a 7-year period under MACRS.

Qualified leasehold improvement property. Qualified leasehold improvements, qualified restaurant improvements, and qualified retail improvement property placed in service before Jan. 1, 2010 may be written off over 15 years via straight line. Unless Congress acts, the generally applicable writeoff period for these improvements will revert to 39 years for property placed in service after 2009.

In general, qualified leasehold improvement property is an interior improvement to a building that qualifies for bonus first-year depreciation, except that if a lessor makes an improvement that is a qualified leasehold improvement, it can't be qualified leasehold improvement property to any subsequent owner, subject to exceptions for nonrecognition and death transfers.

Qualified restaurant property. Property placed in service during the current calendar year is eligible for a 15-year writeoff if it is a building or an improvement to a building, if more than 50% of the building's square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals.

Qualified retail improvement property. Any qualified retail improvement property placed in service after Dec. 31, 2008, and before Jan. 1, 2010, is depreciated via straight line over 15 years under MACRS. Qualified retail improvement property is any improvement to an interior portion of a building that is nonresidential real property if: (1) that portion is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public, and (2) the improvement is placed in service more than 3 years after the date the building was first placed in service.

An improvement made by the owner of that improvement will be qualified retail improvement property only so long as the improvement is held by that owner.

Qualified retail improvement property does not include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, any structural component benefitting a common area, or the internal structural framework of the building.

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